Entrepreneurs Remain Wary

Optimism Begins to Fade as Recovery Lags; 'Betting on 2010 Is Playing Poker'

By

Emily Maltby

Updated March 30, 2010 12:01 a.m. ET

For business owner
Chet Biernat,
recovery is coming in fits and starts.

His transportation brokerage company, INCON Container USA Ltd., saw sales slip up to 30% in the recession. As customers now trickle back, the Royal Palm Beach, Fla., company is seeing "spurts of positive areas, but then it drops off without rhyme or reason," Mr. Biernat says. Because of the unpredictable economy, he's wary of re-hiring four employees laid off last year.

Mr. Biernat's story is typical of many entrepreneurs, who as a group turned slightly more pessimistic in February, according to the latest data from the National Federation of Independent Business. Small-business owners reporting to the trade group's monthly economic index started predicting in April 2009 that sales would pick up. But actual sales fell, hitting record lows through 2009 and posting only modest upticks in 2010.

Yet, there are signs that some industries are faring better than others and may see improvements in earnings this year. Manufacturing, trucking and machine-related industries, which experienced sales declines of 20% to 30% in 2009, could make the greatest strides toward economic recovery, according to Sageworks Inc., a research firm in Raleigh, N.C., that collects data on private companies.

"There is some growth in big public companies that are exporting to growing economies," says
Drew White,
chief financial officer at Sageworks. "Those big companies are paying vendors who are small businesses. That's where revenue increases will come and people will start hiring."

Some large manufacturers are ramping up, including
Boeing
Co.
, which is increasing aircraft output to meet rising demand. The company said earlier this month that its suppliers are ready for the faster production schedules.

Also, notes NFIB's chief economist
Bill Dunkelberg,
stimulus money to the private sector has gone to big construction for government contracts—many of which have yet to break ground —and hasn't flowed heavily through the supply chain to the smaller manufacturing firms. "This recovery is led by manufacturing and business purchases of equipment," he says.

Companies that depend on consumer spending, such as grocery, clothing and electronic and appliance stores, posted sales drops of less than 2% last year, while sporting goods, gift, and liquor stores stayed even with or slightly better than 2008. These industries have shown signs life in the early months of this year, too, according to Yellowbook, which tracks contact information-lookup searches by company type. From November 2009 to January 2010, beauty salons, gift shops and sporting goods stores saw some of the biggest surges in search count.

ENLARGE

But despite faring better than manufacturing firms this past year, experts say that lifestyle industries most likely won't be the leaders in economic recovery. This, they say, is because consumer confidence—which drives these types of businesses—has been much slower to bounce back compared to big business contracts, which propel manufacturing firms. "Consumer spending is pretty puny," Mr. Dunkelberg says. "This time, the consumer is not leading the way out."

In Napa Valley, entrepreneur
Doug Shafer's
winery, Shafer Vineyards Inc., depends on profits from restaurants that stock their cellars with Shafer bottles. Last year, sales fell 10% as fewer guests patronized restaurants and those who did bought food and beverages in the lower price range.

This year, Mr. Shafer and his father, who founded the business, have noticed a slight sales increase in the early months of 2010, but they are being cautious. "Betting on 2010 is playing poker," he explains. "I don't think it is doing as well as I had anticipated, but I'm tickled pink that it is doing as well as it is. While things aren't rosy, I'm not seeing doom and gloom."

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